Instead of new and higher taxes, the incoming chief of the Department of Finance (DOF) wants to focus mainly on the government’s tax administration during the first year of President-elect Ferdinand R. Marcos Jr.
Incoming Finance Secretary Benjamin E. Diokno said he is not worried about the government’s ballooning debt load, noting that the economy can “easily” bring it down once the country’s gross domestic product (GDP) grows by at least six percent to seven percent.
“I'm not worried about the level of the debt for example, that's 63 percent. That's easily manageable,” Diokno said in a televised interview with ABS-CBN New Channel (ANC) on Friday, May 27.
With more than 30-year experience, Diokno explained that he has seen all the crises that struct the Philippines, including its debt level of close to 100 percent of GDP.
“We're in a better place right now, and in fact, this administration that the Duterte administration is going to leave to the next, the incoming administration, is in a much better tax structure than before and it raises more taxes,” he said.
Since 2016, the Duterte administration embarked on a comprehensive tax reform program, which includes the Tax Reform for Acceleration and Inclusion (TRAIN) and Corporate Recovery and Tax Incentives for Enterprises (CREATE) laws, among others.
For this reason, Diokno believes “I think we should stop first looking at the tax reform. What I'm saying is we are dealing with a present tax structure’s implementation.”
The incoming DOF’s chief pronouncement may run counter to outgoing Finance Secretary Carlos G. Dominguez III’s fiscal consolidation and resource mobilization program, a set of recommendations, that he will handover to the next administration’s economic team.
Under DOF’s proposed fiscal consolidation plan, the Marcos administration would need to raise and introduce new taxes to pay off the P3.2 trillion debts incurred during the prolonged Covid-19 pandemic.
Among the key measures being proposed by Dominguez are the deferral of income tax reductions scheduled for individual taxpayers and removal of certain value-added tax exemptions for senior citizens and persons with disabilities.
Ultimately, the DOF estimated that the proposed fiscal consolidation plan, once implemented, would give the Marcos administration an incremental revenue of around P349.3 billion per year from 2023 to 2027.
At end March, the debt-to-GDP ratio stood at 63.5 percent, the highest since 2005 and above the 60-percent internationally prescribed best practice for emerging markets like the Philippines.
But Diokno said Marcos administration can “easily” outgrow the debts, which mostly held by domestic creditors, not by foreign lenders unlike in the past.
“Our problem really is how to get back to our growth trajectory, because that will solve a lot of problems,” the incoming finance chief believes.
“If we grow at six to seven percent, that solves our tax revenue problem, that will solve our deficit problem, that will solve our our debt problem, that will solve our our concern for poverty reduction,” he added.
Everything will depend on the country’s capacity to grow its economy in the coming years, Diokno said.
“So our focus should be how do we make all sectors grow, because there are some laggards like agriculture, it was not growing all these years. We have to focus on that. Mining was stopped for a while. It is now back,” Diokno said.
“So we have to make sure that all sectors of the economy will grow,” he concluded.